Danny Salas

Archive for the 'Loan Qualification' Category

Navigating Through the Loan Labyrinth: Qualifying for Loans… What Happened, Where it Led, and Where We’re Going

If you’re not aware now, you’re in the dark.  Qualifying for a real estate loan has gone from the necessity of having a pulse, to documenting every little item you can think of.  However, there are signs that the industry is beginning to become flexibly fair, again.  And, it’s a welcome sign to many…as long as we don’t go back to the ridiculous requirements that led us into the financial turmoil that brought capitalism to its knees. 

While I was never much of a proponent of the Subprime lending world, there were still loans that Fannie Mae and Freddie Mac were purchasing that should have never been in the repertoire of the major lending bank institutions and the sale to the Guaranteed Security Enterprises (Fannie & Freddie).  To be clear, the 90% Financing Loans with Stated Income, State Assets, and Stated Employment Guidelines (with credit scores as low as 680) were the mastermind of the big banks, not Fannie & Freddie.  In essence, the banks told the GSE’s what they would buy.  The market simply supported the sale of these loans because values were supporting the investments.  So subprime lenders, in order to compete, had 100% financing loans with similar requirements, yet much lower credit risk score thresholds. A recipe for disaster.  In hindsight, an easy statement to write; but the lesson was learned…all over the world. 

After the Mortgage Credit Crisis, the real estate loan industry went through a transition like no other.  The Federal Government came in a took over the GSE’s in a receivership-like fashion, printed money in record amounts to give lending institutions the ability to stay in business, and kept the housing industry moving.  Loan Guidelines went through their own transition.  Processing a loan transaction became a specialty as experts in the industry fought to keep up with the current requirements, change the paperwork that was initially required, understand the differences regarding how to order an appraisal, and keep real estate agents and clients happy.  A daunting task!  My office changed the “Needs Checklist.”  Our list was now foreshadowing underwriting requirements and asking clients to do things we’ve never had to in the past: an example was the inquiry letter.  In the days of Pre-Mortgage Credit Crisis Lending, most of the time an inquiry letter wasn’t even asked for through the funding of the loan. 

However afterward, banks were pooling up their loans to sell to the GSE’s, selling those loans, and months later (and even a year or more, in some instances), the GSE’s were calling clients and asking if they wrote the inquiry letter explaining any inquiries on their credit report.  “Well, no, my loan officer wrote that letter for me, and we just signed it,” may have been a common response.  The GSE’s were making the originating office (the office in which the loan officer that took that initial application was working) buy that loan back.  So, our office learned that we would put on our “Needs Checklist,” ‘Write an explanation into each inquiry on your credit report (attached)’.  We would send a letter with the inquiries on it, with space after each inquiry for the client to write a little statement regarding those inquiries, and if there was any new debt associated with those particular inquiries…in their own handwriting!   Another major change was the processing of the 4506-T form, and NOT having the ability to close a loan until that form was processed.  The 4506-T form is a Federal Tax Return Processing form.  It allows lenders to receive an electronic print-out of a client’s 1040 Federal Tax Returns.  Line-by-line, each tax return must be processed and MATCHED with the tax returns supplied for the loan approval.  Every line may not be off - by even one dollar - or the loan cannot move forward.  A positive spin to the state income loans of yester-year however, a time-consuming and tedious aspect of closing a loan. 

Now, we’re starting to see the GSE’s relax on some of their lending guidelines.  The first example, I’ll share, is regarding the ability to only use one year of 1040 tax returns, as opposed to two.  This obviously, can be helpful to the self-employed borrower, which has been suffering over the 2008 and 2009 tax seasons; however, in 2010, they started to recover from the recession.  If their net income has increased substantially in 2010, and lenders only need one year of returns, you don’t have to average 2009’s income with 2010’s income to qualify - therefore opening the door to many more buyers.  The determining factors are an automated approval that only asks for one year, and an investor that will fund that loan and sell it to a GSE.  Another very exciting change is the ability to use rental income to qualify a buyer buying an investment property for the first time.  Recently, we have HAD to have a buyer file a Schedule E on their federal tax returns, documenting that they have had rental properties for the past two years, in order to use ANY income on the subject property to purchase it, if it was an investment property.  Now we’re seeing that the GSE’s are allowing us to use the appraisers 1007 and 216 forms to qualify 75% of market rents, to offset the monthly payments on an investment purchase.  These forms are rental surveys and operating income statements, that accompany the Uniform Residential Appraisal Report, enabling more people to get out their and buy investment properties while rates and values are at record bargains. 

Keep in mind that there are many more exciting changes occurring, and many more right around the corner.  However, each bank has its own underwriting guideline, or overlay, that may or may not qualify a particular buyer to fit into each or every separating factor or changed qualifier.  Someone who’s automated approval may say only one year’s tax return is required, may have something interesting on their tax returns, which may require an underwriter to ask for another year’s returns to be sure it’s not something that could affect the files strength when the GSE’s go to purchase that loan.  So, even though we’re seeing some changes, we’re still going through tough times; and I’m telling you, when it comes to the labyrinth of loan closing requirements, particularly these days, it’s not over ’till it’s over!  But, know that there is a light at the end of this tunnel; and as long as we move forward responsibly, we’ll have more and more flexible underwriting guidelines, opening up the purchase market to more and more opportunities for all of us.

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Distressed Markets Update

PMI Distressed Markets Policy – Effective 4.25.11

Encouraging news! Market conditions have improved sufficiently to enable PMI to expand LTV
and Minimum Credit Score requirements. The new criteria apply to conforming loan amounts in
PMI Distressed Markets.

The PMI Distressed Markets Policy will change as follows:

• LTV eligibility expanded to 95% for Purchase and Rate/Term Refinance transactions
• Minimum Credit Score lowered to 680 for LTVs less than or equal to 90%
• High-Balance loans remain unchanged

PMI Distressed Markets List – Effective 4.25.11

In addition, the following 4 MSAs* will be removed from PMI’s Distressed Markets List:

PMI Distressed Markets List – Effective 7.1.11

The entire states of Arizona and Florida will be added to the PMI Distressed Markets List effective 7.1.11. Attached housing remains ineligible in the state of Florida.

For complete information, please review the updated PMI Distressed Markets Policy, the
PMI Distressed Markets List, and Guidelines at a Glance.

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New Home Remodel Program

Access Real Estate Lending’s
Home Remodel Program

For Minor OR Extensive Repairs

Rate: 15 or 30 Years

Program Summary: Our Home Remodel Program allows borrowers to combine the purchase or refinance of a home with the costs to renovate or extensively remodel the property. At closing all funds for renovation will be escrowed in an interest earning account. After all renovation work is complete, any remaining funds in the renovation escrow account will be used to pay down the principal balance of the mortgage. Soft costs such as architectural services, engineering and permit fees may be financed. Full builder third-party contracts only.

Click Here for PDF

FOR PROJECT/ RENOVATION COSTS UNDER $80,000         

• $795 for three draws
• $150 for final inspection
• $150 for final title update 

FOR PROJECT/ RENOVATION COSTS OVER $80,000

• Additional draws: $175 per draw (number of draws is fixed prior to closing)
• Final inspection fee included in above price
• $150 for final title update

PROPERTY TYPES

• One or two-unit site-built homes

Bankruptcy, Foreclosure, Shortsale Timeline